Amortization Expense question?

In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $4 million, patent; $3 million, trademark considered to have an indefinite useful life; and $5 million, goodwill. Burger Mania's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a five-year service life.

What is the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items?

1 Answer

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  • Sandy
    Lv 7
    1 decade ago
    Favorite Answer

    Since the $3 million, trademark is considered to have an indefinite useful life, the policy doesn't apply.

    Goodwill and intangible assets with indefinite useful lives are not amortized but tested annually for impairment.

    So the only intangible asset you'd amortize is the patent $4 million, over five-year service life.

    the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items would be $800,000.

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